All Forum Posts by: Nick Camizzi

@Nick Camizzi - I'll start with the disclaimer ... not an investment advisor ... all investments have risk ... talk to your cpa/financial advisor ... and the rest of it. 

Whenever we are investing we are trying to allocate position sizes (how much of our wealth is in a given area) around a few key factors. For me I think of those factors in the following ways. 

- Knowledge 

- Risk

- Conviction 

- Comfort 

The higher the knowledge in a given area and the higher the conviction about performance, then usually that dictates a larger position size without equal amounts of risk. If a position size ever puts us out of balance then we either hedge or reduce the position to bring things back into balance. For me figuring out how much equity to hold in a property, which properties have debt, and when to take on leverage is the same mental process as determining a position size.  

Personally, I use a hybrid of Dave and Robert because it works well for my wife, my self, and our profile as investors. We like the security of having a paid for roof over our head and we don't mess with consume debt (Dave Ramsey model). Outside of that, we have zero issue matching the best debt we can find to the best deal we can find and leveraging ourselves when it comes to business and investments (Robert Kiyosaki Model). I LOVE debt, as long as it fits my underwriting on a deal. 

Our approach, like every decision has a trade off. We are trading the security of our home, for higher borrowing costs. We could have owned a rental and leveraged our home at a lower rate but instead we decided to own our home and leverage a rental at a higher rate. We could also pull tons of equity from our home, and use it to buy rentals, but we are growing a little slower and enjoying the peace of mind of owning the roof over our head. 

What is right for you will not be right for someone else. This community could give you a great plan for how to leverage your situation into a fantastic portfolio ... but it may not be a fit for you, and there is nothing wrong with that. 

- If you sell your home, and have a capital gain, provided it was your primary residence for two of the last five years (I think I have this rule correct) then you can dodge any capital gains up to $250k if single and $500k if filing jointly. When you make a profit and Uncle Sam doesn't rip it from you, it starts to accumulate across a few transactions. Note that if you put renters in the home, your ability to sell and not pay capital gains could be limited (talk to CPA). 

- Just because you have equity, doesn't mean you have to borrow every dime. If you think the home is in a solid location and you don't want to sell,  can you pull enough to keep your mortgage manageable and provide you what you need to buy your next residence? 

- Have you thought about saving for a downpayment on your next home, then getting a HELOC on your current home after you move? If you have that much equity you could use the rental home like a revolving line of credit.

The beauty of real estate is that there are tons of creative options. 

In your shoes, based on the way my wife and I like to invest, we would likely sell, pulling equity for cash flowing rentals and our next primary residence. 

Best of luck on your real estate investing journey. Keep us all posted on what you end up deciding! 

@Nick Camizzi - Ahh I see.  That's a screaming interest rate.  I have the same problem too on 2 properties.

In that case I'd go with the HELOC and then move. Yes, the rate would be 11% but the blended rate would be much lower and there's no closing costs and you keep the 2.99%.

Is moving in the future a possibility? That would be the best option IMO. Now your primary becomes a cash flowing rental with a 2.99% interest rate, fast equity build up bc of the low rate and a $150K HELOC. If the cash flow is high enough it may cover the interest on the HELOC up to a certain amount or at the full $150K.

Your next house you'll have to come out of pocket on but that's OK. W2 + Door dash, Uber, Lyft, etc... and stack cash while you're living with a 2.99% interest rate and low monthly payment and get to that 5% to 10% needed for the downpayment for house #2. For house number 3, you can use the HELOC funds from the 2.99% interest rate house for some or all of the downpayment. Plus you'll have 1 year of rental income and experience which will help when talking to lenders.

Right now maybe the best use of the 2.99% interest rate and $150K of equity is your low living costs which gives you a big shovel you can use to stack cash.

Quote from @Nick Camizzi:

Quote from @John Cardinale:

have you considered a HELOC instead of a cash out mortgage? That's what I've used in the past and the flexibility of it is really nice.

The HELOC is 11% I’m not doing that 

The thing to consider is your opportunity cost. What do you plan to do with your $150,000 once you get it, because you'll be paying $1400/month having borrowed it all at once. If you just want access to your equity and will figure out where to invest it later, the HELOC allows for this. You only owe on what you have borrowed at that time. 

If I see a property I want, I use it. Also the interest is simple interest only so its not so hard on your cashflow. I.E. if you need $50,000 to close quickly on a renovation opportunity, you can do so. The cost to you at 11% would be $458/month in interest only payments. You can pay back the loan principle when you have exit the project via Cash out refi or flip.

Trapped equity is a good problem to have.  

I'd say it is solving a problem for you as it's keeping your monthly payments low and locking in a lower interest rate.  Now it's probably not the best and highest use of it but that's where you need to get creative and figure something out.  6.75% are your borrowing costs...there has to be an investment or long distance market out there that can beat that. 

@Nick Camizzi feel free to send me a DM if you’d like to chat further. Happy to help with the loan anyway I can.